2. The German Historical School of Economics and the Foundations and Development of the Austrian School of Economics

Abstract

Despite its status as the world’s leading school of economics during the second half of the nineteenth century, it is now generally accepted that within the contemporary mainstream, the GHSE has the ‘worst reputation’ of all the research programmes in the history of economic thought. This view has been largely shaped by Austrian School theorists. The Austrian School of Economics was originally founded on the basis of Carl Menger’s critiques of the supposed weaknesses and flaws of the German Historical School of Economics: this chapter examines how criticisms of the fundamental principles of the—as expressed by ASE theorists—influenced the formation and development of the ASE’s own fundamental principles. In addition to disputes over methodological collectivism or methodological individualism, the deductive versus the inductive method, ethical values and state intervention and the nature of ‘knowledge,’ there were emotional issues: Menger—who was truly upset by the severe criticisms directed against him and his book by GHSE theorists and their labelling of him as an ‘Austrian’ economist—went from having a high opinion of the GHSE to having a low opinion of its theorists.

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